EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 22, Problem 12PS
Summary Introduction
To calculate: Arbitrage situation of gold prices and how to use it when the current interest rate is 2% and the future price of gold is $1500, $1510.
Introduction: Arbitrage is a type of transaction which has no risk. It makes profit by comparing different prices from different markets and that profit called as arbitrage profit.
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Students have asked these similar questions
It is now January. The current interest rate is 2%. The June futures price for gold is $1,500, whereas the December futures price is $1,510. Is there an arbitrage opportunity here? If so, how would you exploit it?
The spot price of gold today is $1, 507 per troy ounce, and the futures price for a contract maturing in seven months is $1, 548 per troy ounce. If Golddy Plc puts on a futures hedge today and lifts the hedge after five months.
a) Calculate the cost of carry for gold.
b) If the spot price of gold in five months' time turns out to be $1,520. What will be the futures price five months from now?
c) How much is the basis in five months' time?
Suppose we wish to borrow $10 million for 91 days beginning next June, and that the quoted Eurodollar futures price is 93.23.
What 3-month LIBOR rate is implied by this price?
How much will be needed to repay the loan? Show work and discuss result.
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